As an employee, it may be relatively easy for you to build your retirement funds as your employer will usually take care of it. You can avail various retirement plans like pension, 403(b), or 401(k) plans. Moreover, our employers automatically deduct these contributions before we even get our paycheck, making it easier for us to stick to our retirement plan.
However, it may be a different case for entrepreneurs. How can you build your retirement funds when you don’t get a stable paycheck since you don’t have an employer? Most entrepreneurs encounter this dilemma as they tend to focus all their attention in making a business they often overlook building their retirement funds.
If you’re one of these challenged entrepreneurs, the financial experts recommend you follow these tips to create an adequate retirement plan before it’s too late.
Weigh Your Options
Consult with a financial adviser to know the appropriate retirement plan for you.
According to experts, the first step in building your retirement fund is to know the best pension plan for you. You can choose among these three options depending on what suits your preference best.
Roth IRA
You can invest your money (already deducted with tax) and save it to IRA. What’s right about this account is that it’s tax-free upon withdrawal. This account lets you save more money for your retirement. For entrepreneurs under 50 years of age, you can avail a maximum contribution up to $6,000 annually. For 50 years and above, you can have maximum contributions up to $7,000 annually.
Traditional IRA
This retirement option has the same rules as IRA except that it uses pre-tax money. While you need to pay the tax upon withdrawal, this plan allows you to lower your taxes contribution per year. Most entrepreneurs tend to avail both to maximize their benefits.
Solo 401(k)
If you intend to save more than $6,000 per year, the experts recommend you take Solo 401(k) instead. This retirement plan works for one-person business who usually don’t have employees. Furthermore, this plan enables you to invest up to $50,000 annually of your pre-tax income.
Slow and Steady Investment
The experts say it’s not necessary for you to invest a hefty amount of money in building a comfortable retirement fund. However, they advise you to make saving a habit instead. As what Albert Einstein says, make use of the power of compound interest.
Develop a saving habit to let your money grow to its full potential through compound interest.
Start saving and building your retirement funds as soon as you can if you want to accumulate $1 million when you retire. You only need to save $241 per month if you save diligently as early as 25 years old.
Always Make a Budget
If you struggle in building a savings habit, the experts recommend you make a monthly budget to track your cash flow. The trick here is to include your retirement savings in your budget so that you have to allocate a budget for it.
Your monthly budget helps you determine what areas you can cut down your expenses and transfer it to your investment. You can also monitor your current debts to decide what you can pay off and eliminate first.
Diversify Your Portfolio
Now that you’ve built a steady investment portfolio, it’s important to diversify your investments as much as possible to manage the risks associated in each investment scheme.
The experts recommend you review your financial goals to determine the best investment schemes for you.
For example, if you want to travel the world or build a house when you retire, it’s best to put them on stocks to gain the highest potential returns. If you’re going to save for your children’s education, they recommend putting it in moderate-risk investments to earn a stable income for your children.
Don’t Touch Your Investments
Finally, the experts recommend you don’t touch your investments at all costs! Avoid the temptation to withdraw it when the market dips. Instead, try to focus on your goal. If you haven’t achieved it yet, keep holding on to your retirement account. If you’ve obtained it, only then you can start withdrawing.
